Limited Liability Companies are designed as the most flexible type of business entity. Importantly, they allow business owners to shield themselves from personal liability for the actions of a business. A limited liability company allows owners to combine valuable features of corporations, partnerships, and sole proprietorships. Here are five things you need to know about limited liability companies in Virginia:
1. What’s in a Name? Naming Your Business.
When you name your business, one of the most important features is that the name is distinguishable from other business entities governed by the State Corporation Commission, the governing body for business entities in Virginia (“SCC”). If another company is using the name you intended for your business, you will have to utilize a different one. A name that you intend to use at a later date can be reserved with the SCC.
There are also certain words that you cannot use in your LLC. The word “bank,” for example, is prohibited, unless you are in fact operating a bank. Additionally, your LLC must use the words “limited company” or “limited liability company” or their abbreviations “L.C.,” “LC,” “L.L.C.,” or “LLC” in its name.
2. Your Operating Agreement.
In Virginia, an operating agreement is not a requirement in order to form a valid LLC. An LLC can instead be governed by the default rules of the Virginia Limited Liability Company Act § 13.1-1000, et seq.
Just because you can operate your business without an operating agreement does not mean you should. The default rules created by the Virginia Limited Liability Company Act are what the legislature thinks you may want, not what works best for your business. It is important that you craft your operating agreement to take into account your specific goals and business objectives.
3. Registered Agent.
When you create your business, you will be asked to name a registered agent. A registered agent’s sole duty is to receive service of process, notices, or demands and forward them to the LLC’s last known address. If your business is sued, the registered agent receives the official notification. The registered agent must be a Virginia resident or business and maintain a physical address in Virginia. PO boxes are not permitted. They also must be available during regular business hours.
Oftentimes, LLCs will select a professional registered agent. One reason for this is that if you are operating a business that is open to the public, receiving service of process at your place of business is often disruptive. A registered agent ensures that you receive all important legal notices without disrupting your day-to-day business operations.
4. Tax Identification Number/EIN.
Once you have created your LLC, you should obtain an EIN (Employer Identification Number) from the Internal Revenue Service (“IRS”). If you are a sole-member LLC, you can use your Social Security number as your tax identification number with the IRS. Again, just because you can does not necessarily mean that you should. An EIN gives your business a unique identifier with the IRS. It can easily be set up online at irs.gov. You will need an EIN in order to open a bank account for your business.
As Benjamin Franklin famously noted, “In this world, nothing is certain except death and taxes.” At tax time, by default, a single-member LLC will be treated as a “disregarded entity” and taxed on your personal tax return. A multi-member LLC will be treated as and taxed as a partnership.
However, one of the flexible features of an LLC is the benefit of selecting how you want to be taxed. When you set up your LLC, you are also able to elect to be taxed as an “S” Corporation or a “C” corporation. There are benefits and drawbacks to each – tax law is complicated, and individual circumstances mean that what is right for one company is not right for another. These factors should be discussed with a professional to determine what works best for you and your business.
If you are just starting your business and want to know if an LLC is right for you, the attorneys at Way Law are here to help! Call us today for the guidance you need to ensure a successful start to your business.